What Kerala’s moneylenders understand about India
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In Kerala, there is a pawn-broker every 100 metres. This is not a figurative expression. This is, in fact, a conservative statistic. They are not called pawn-brokers, though, anymore. The business is called gold loans. Malayalees have always referred to pawn-brokers by another name—“blade". Probably to mean that they bleed you to death. But this is only to get a laugh. Today, Kerala’s big gold-loaners are widely trusted.
I spent a lot of time with one major money-lending family of Kerala. I will refer to them only as ‘Family’.
Their most important brief to their staff is that when a person comes to pawn her gold, it is a very serious moment in her life. So, the staff is instructed to be solemn. They are to abandon laughter, banter and the phone, and respect the moment. It will deeply move my mother—to know that pawnbrokers always knew how she felt.
The Family also follows another important point of decorum, in response to their belief that the moneylender, no matter which village, municipality or era he might be in, is a neighbour, essentially. So small talk must be made with customers, which like most successful small talk is not designed to extract information, but results in its flow anyway.
Most of India’s gold is bought by Malayalees. Yet, you will almost never see women bedecked in gold jewellery, the way Tamilians are. (Jayalalithaa even had a gold belt, which was as large as a wrestlers’ belt.)
Malayalees don’t exactly love gold; they love what gold can do. A marketing executive of the Family told me, “For Malayalees, gold is practical thing. That is why Malayalee gold is often ugly and chunky, and all-gold. There is no stigma in pawning gold anymore in Kerala. Its innate purpose, for a Malayalee, is that it is a collateral."
Today, 90% of the revenues of Kerala’s big non-banking financial companies comes from gold loans. But this is not going to last. A future looms where the number of Indians who pawn their gold will stagnate or decline.
It was partly this fear of a future crisis that made the Family send a few thousand executives out to spy. Their job was to meet and have a casual conversation with “anyone who conducts an economic activity" and belongs to a segment that conventional banks will not lend to. It was a vast survey of Kerala’s bottom rungs, but the surveyors were asked not to make it look too formal. The Family always got its best information from casual chats.
The employees chatted up over 100,000 men and women and the results confirmed the Family’s fears. Increasingly, most Malayalees did not wish to pawn their gold in times of emergency. Worse, many of them did not have any gold. A set of modern behaviours was eclipsing an economic pattern that was precious to the Family. Malayalees have steadily been prospering, and in a few years, they will not be pawning gold for contingency funds. They may dip into their savings or might even qualify for personal loans from regular banks. They might even assume more fashionable debts through credit cards. This is the reason the Family, like other gold-loan companies in Kerala, have tried expand to the rest of India, but it is inevitable that in just a few years the rest of India, too, will not need gold loans.
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This is why the Family decided to get into subprime loans across India, lending to those who represent higher risk. Their existing customers did belong to the bottom 90% of India, but still, people who pawned their gold were among the upper rungs of this group. Now the Family opened its safes to men and women who borrowed from street-corner moneylenders at exorbitant rates of interest because no one else would lend them money.
Most Indians are entrepreneurs. And most of them borrowed for business or for an emergency, or to just survive, and at rates that translate to 48-60% a year, and in some cases, by some measures, many times higher. What fascinated the Family while studying the survey report was that small entrepreneurs could afford exploitative rates. Something about Indian life and prices was structured in a way to absorb the high cost of street loans. The Family decided to lend them ₹10,000-15,000 at 24%.
But the most important feature the Family introduced was not the risky loan. It was equal daily instalments. “The small vendor on the street, he doesn’t have the time to come to us and pay," the head of the Family told me, “He has to shut his shop to go and pay his interest. Shutting shop for an hour costs money. So we go to him every day."
All major gold loan corporations in Kerala have extraordinary brand appeal in Kerala. The message that they have conveyed is that they are in a highly moral business, which is to replace the exploitation of street money-lenders, who used to convert clients into bonded slaves, and thereby service a market that the larger impersonal banks did not care about, and also fund poor entrepreneurs whom the government was unable to serve efficiently enough.
But there still is a stigma attached to money-lending. Even though all banks are in the business of lending, non-banking finance companies, especially the Christian money-lenders of Kerala, have to grapple with the moral stain that emerges from Christianity’s reproach of usury.
A German called Jakob Fugger, regarded as among the richest men who ever lived, changed this around 1515 CE. He allegedly bribed Pope Leo, who legitimized profiting from moneylending. But then, later popes reverted the stain. What is beyond dispute, however, is that moneylenders everywhere and in all forms had excellent reasons to exist.
Manu Joseph is a journalist, novelist, and the creator of the Netflix series, ‘Decoupled’
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